Lynne Sladky/AP Photo
People look at NFT artwork at the Tezos exhibition during the VIP preview of Art Basel Miami Beach, November 30, 2021, in Miami Beach, Florida.
A top source of trading activity in cryptocurrency markets is largely a bubble. Its investors will openly tell you this.
Developers working on new platforms for the trendy blockchain-based collector items known as non-fungible tokens, or NFTs, routinely dismiss them in the next breath. Many flippantly refer to them as “JPEGs.”
A digital image by the artist Mike Winkelmann, who goes by “Beeple,” sold for $69.3 million at Christie’s auction house last year.
“I actually believe it is a bubble, to be quite honest,” Winkelmann told NPR in an interview. “When the bubble bursts, it’s not going to wipe out this technology. It’s just going to wipe out the junk.”
In an industry famous for meme stocks and multibillion-dollar “shitcoins,” irreverence toward your own product might seem par for the course. But NFTs are worth attention, and not just because of the risks inherent in frothy markets. Even as developers dismiss the utility of NFTs, many are dead serious about the long-term value and real-world applications of the NFT-integrated platforms they are helping to erect.
That helps explain why major banks and legacy auction houses are fueling the fun. NFTs in their most common iteration—expensive collector’s items conferring ownership of digital images—will probably be a niche product after the bubble bursts. But they are popularizing infrastructure like digital wallets that venture capitalists are betting will outlast drawings of cartoon apes.
WITH SOME $23 BILLION IN TRADING VOLUME last year, NFT trading is racing ahead in market share, bucking the broader downturn in crypto markets. Google is launching a blockchain division. Facebook is reportedly exploring some sort of trophy case for flaunting your assets.
Last week, Twitter announced that subscribers of the paid version of the website can now show off their NFTs as a unique, hexagon-shaped profile picture. Some Twitter users changed their avatars to pictures of CryptoPunks or Bored Apes.
The images are meant to be unique status symbols, but within hours, tech bloggers showed how you could use look-alikes to work around Twitter’s verification system. Users pointed out that to copy an image, you can simply “Right-click save!”
Defenders bleated that NFTs aren’t the same as JPEGs. They’re right: There’s even less to NFTs than meets the eye. An NFT is a receipt showing that you purchased a digital asset, like a JPEG. It’s not the JPEG itself.
More precisely, an NFT is proof of having bought an asset, stored on a digital ledger called a blockchain that tracks details about the asset’s ownership history. So it’s a digital certificate of authenticity—essentially, a fancy receipt.
Mocking the fad doesn’t change the fact that it’s hauling in billions of U.S. dollars and leaving retail investors burned. Expensive receipts have, themselves, become a coveted status symbol. The underlying use value has mostly dropped away. That’s weird, but commodity fetishism always has been. And other collectibles with high exchange value, from baseball cards to stamps, have always been with us. The surface absurdity of this product has made casual observers too dismissive of the trend.
Investors admit the bubble is likely to burst, but that hasn’t made them less interested in the sector. Sure, in their current primitive form, NFTs are basically just JPEGs. But, crypto investors say, wait till you see what comes next.
CRYPTO FOOTWEAR STARTUP SOLKICKZ has just released a collection of 1,111 unique NFT images of sneakers.
SolKickz’s founder, who asked the Prospect to be identified only as Sam, previously worked at State Farm Insurance, and said he got into NFTs because he thinks crypto startups are passing up the chance to create products with real-world utility.
SolKickz’s first collection comes with a twist: A subset of the NFTs will also be manufactured as a wearable pair of shoes. Once the collection sells out, Sam said, 100 lucky buyers will be asked to fill out their shipping addresses and shoe size through a Google Form.
But adding in the Willy Wonka–style enticement may not be enough, he worries. “If you didn’t get the handmade, I don’t want people just selling for a loss on the secondary marketplace. So I decided to reward holders.”
To discourage buyers from reselling the NFTs, potentially harming the collection’s price and exclusivity, Sam is promising to make “holders” eligible for future limited-edition collections, including more pairs of physical shoes. These could be delivered via “airdrop.” That’s the word for a delayed disbursal of cryptocurrency or other assets to the owners of an NFT, often used for special promotions.
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A physical pair of sneakers matching a unique digital pair, SolKickz’s item #44 “Cyberpimp Purple”
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A physical pair of sneakers matching a unique digital pair, SolKickz’s item #44 “Cyberpimp Purple”
Sam tossed out other incentives, too. SolKickz will make a $10,000 donation to a children’s charity, not yet chosen. Also, free shipping. The costs add up, he grumbled. “This is real leather.”
SolKickz might just be reinventing ordinary retail, with a bonus internet sticker receipt. Other entrants see more promise in putting important or personally meaningful documents, like concert tickets, on the blockchain.
Carlos Sanchez, a physics master’s student in Manchester, England, is part of a team launching a startup to make digital event tickets less drab.
Paper tickets to concerts, movies, and sporting events have been replaced by single-use PDFs and QR codes, Sanchez explained. At one time, ticket stubs were seen as memorabilia, put into frames or cherished by fans.
Sanchez’s firm plans to design unique tickets meant to be permanently displayed in crypto wallets, long after users attend events. Those could be hosted in the real world or in the metaverse. He’d like to strike partnerships with sports teams like Manchester United, who he hopes will deliver every ticket they sell as an NFT keepsake.
Potential uses for blockchain-verified documents range far beyond ticketing. Medical records, for example, are scattered across siloed databases that force patients to rely on unreliable private companies and government bureaucracies.
Sanchez, who was born in Spain but lives in the U.K., worries that it could be tricky to transfer his National Health Service records internationally. “It’s a mess,” he said. He had trouble when Spanish officials reviewed his vaccination records from the U.K., he added. It occurred to him that governments’ deployment of paper vaccine cards, and attempts at digital equivalents, could make people see the value in a decentralized ledger of medical records.
Intellectual property is another application. Tech giant IBM, the longtime top recipient of U.S. patents, last year announced a blockchain technology to turn patents into NFTs. The company says it will help trade and monetize the sleepy patent market, and could enable fractional ownership of IP.
TURNING REAL-WORLD COMMODITIES into blockchain tokens could also prove lucrative in the housing sector. “Proptech” startups are attempting to launch blockchain-integrated real estate.
Not only would homebuyers pay in digital currency, but some are hoping deeds and other documents could live on decentralized digital ledgers.
Backed by the National Association of Realtors, Propy is one real estate startup that actually ran a pilot program in South Burlington, Vermont. The city clerk’s office agreed to use the Ethereum blockchain to record real estate transactions—and went as far as selling a house, creating the first blockchain-backed deed.
So far, blockchain real estate hasn’t taken off. There are good questions about whether real estate transactions should be easy to execute, given the importance of the transactions to peoples’ financial futures. Technology could reduce the role of intermediaries and simplify the legalese of escrows and property records, but it’s worth asking whether that’s desirable.
However, major banks are increasingly betting on the eventual mass uptake of crypto-integrated infrastructure like digital wallets. A new JPMorgan report, “Payments Are Eating the World,” ponders a scenario in which all payments are consolidated through a “universal wallet,” likely accessed with a biometric identifier such as a fingerprint or face scan.
Widespread deployment of those tools could still be years away. But even if NFTs are merely JPEG receipts, they wouldn’t be the first speculative bubble to induce some creative destruction.
Sam, of SolKickz, noted that it’s hardly surprising images proved to be the avant-garde of a new cultural form. “Art is what blew up first. It’s no surprise, right? Considering the Renaissance, and all that.”
